Free Receivers Financial Report - District Court of Colorado - Colorado

Case 1:01-cv-00645-JLK

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 01-cv-645-JLK SECURITIES AND EXCHANGE COMMISSION Plaintiff, v. KENNETH ROY WEARE a/k/a ROY WEAVER, J&K GLOBAL MARKETING CORPORATION, and AAA-AUCTION.COM, INC., Defendants.

RECEIVER'S SIXTH QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2007

Patten, MacPhee & Associates, Inc., the Court-appointed Receiver in this case, submits its quarterly report for the calendar quarter ended March 31, 2007, outlining the current status and progress of its efforts to establish and administer the claims process for investors, as set forth in the Court's Order Appointing Receiver dated October 26, 2005. This quarterly report summarizes activities undertaken by the Receiver from January 1, 2007 through the end of March 2007. The Receiver reports the following: 1. Prior to the beginning of the period covered by this quarterly report, the Court entered

its Order approving the Receiver's Unopposed Motion to Establish Procedures and Deadline for Filing Claims, to Approve Manner of Notice to Potential Claimants, and to Establish Claims Review Procedures ("Motion to Establish Procedures") and establishing midnight, March 12, 2007 as the

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deadline for the Receiver to have received timely-filed claims from investors in J&K Global Marketing Corporation ("J&K Global") and AAA-Auction.com, Inc. ("AAA-Auction.com"). 2. In accordance with the Court's Order, the Receiver posted at its website .pdf files of

(a) the Motion to Establish Procedures; (b) the Court's Order dated December 6, 2006; (c) the Claims Bar Date Notice; (d) a Proof of Claim Form that could be printed and mailed to the Receiver or completed online and submitted to the Receiver electronically; (e) a "Guidance on Completing Your Proof of Claim Form," prepared by the Receiver; and, (f) a Consent to Consolidation Form, which allowed claimants, desiring to do so, to consolidate their claims onto one Proof of Claim Form. 3. On or about December 22, 2006, the Receiver sent a broadcast e-mail containing

electronic links to the documents described above to all potential claimants who had registered their current contact information with the Receiver. At the same time, paper copies of those documents were mailed to all potential claimants who had expressly requested postal delivery of all documents from the Receiver. 4. Additional e-mail notices were sent by the Receiver on January 17, January 31,

February 6, February 8, February 15, February 20, February 27, and March 6, 2007 to those potential claimants who had not yet submitted a Proof of Claim Form. The Receiver also continued to mail a Proof of Claim Form, Claims Bar Date Notice and other documents described above to potential claimants subsequently requesting them or about whom the Receiver could not confirm receipt of the e-mail notice sent on December 22, 2006. In addition, the Receiver modified its website to

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include FAQ's and other information regarding the claims administration process and the deadline for submitting claims. 5. During the period covered by this quarterly report, the Receiver continued its efforts

to identify and locate AAA-Auction.com investors, who invested earlier in time, were fewer in number and invested substantially greater sums than J&K Global investors. As a result of those additional efforts, the Receiver located several "lost" AAA-Auction.com investors, including four not previously identified by the SEC. The Receiver has received at least 22 Proof of Claim Forms from AAA-Auction.com investors, representing approximately $400,000 in losses. 6. Throughout the period covered by this quarterly report, the Receiver routinely

responded to questions and issues posed by potential claimants regarding the procedures for submitting their Proof of Claim Form and/or Consent to Consolidation Form(s), the existence or absence of documentation to support their claims, the need for providing a tax identification number with their claims, verification of the timely receipt of their claims, and other matters related to the submission, validation and payment of their claims. 7. The first completed Proof of Claim Form was received at 12:26 p.m., M.S.T., on

December 22, 2006. Twenty-nine (29) additional claims were received that evening. By December 31, 2006, approximately 200 claims had been submitted, claiming a total amount of approximately $975,000. 8. By midnight, March 12, 2007, the Receiver had received a total of 1,863 timely-filed

claims, representing approximately 4,600 investments in J&K Global and at least 22 investments in AAA-Auction.com. The total amount claimed was approximately $5.025 million. Included in those -3-

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totals, however, were as many as 150 duplicate claims and several large claims, for as much as $200,000 each, with no apparent basis for the dollar amount claimed. For example, on or about February 2, 2007, the Receiver was sent an e-mail by a J&K Global investor in Canada, stating that he and three friends invested $375 each. Yet, when he and the others submitted their claims to the Receiver approximately two weeks later, each claimed $200,000. 9. Similarly, the Receiver has observed a number of J&K Global investors submitting

claims for amounts lost in other investment scams, or an estimate of the total amount he/she lost in all internet investment scams combined. For example, in reviewing one claim for $41,125, the Receiver's staff was able to verify initially only $1,125 as an investment in J&K Global. In reply to an e-mail from the Receiver's staff for additional information regarding the other $40,000 claimed, the claimant advised the Receiver to "ignore" that amount because it was related to another investment. 10. The total dollar amount of claims allowed by the Receiver, therefore, will be

substantially less than the $5.025 million claimed by investors. 11. As of the date of this quarterly report, the Receiver's staff has preliminarily reviewed

more than 1,760 claims, or roughly 95% of the timely-filed claims submitted to the Receiver. Of the claims reviewed to date, the Receiver has approved more than 65% of them for the entire amount claimed. At the same time, the Receiver has denied as many as 7% of the reviewed claims in their entirety because either there is no record of the claimant being an investor in J&K Global or AAAAuction.com or the claimant appears to have made money as an investor. The Receiver has partially

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allowed/disallowed the remaining claims reviewed to date, or has reached no final decision awaiting further information from the claimant. 12. To date, the Receiver has also received approximately fifty Late-Filed Claims, as that

term is defined in the Motion to Establish Procedures. The Receiver plans to review and validate those and any additional Late-Filed Claims as if they had been timely submitted. If, as the Receiver now anticipates, the total dollar amount of allowed claims does not significantly exceed the amount held in the registry of the Court, the Receiver may ask the Court to include these Late-Filed Claims in its plan of distribution. 13. As set forth in the Motion to Establish Procedures, approved by the Court's Order

dated December 6, 2006, the Receiver has until May 11, 2007 to complete its review of all claims and to send a Determination Notice to all claimants. As of the date of this quarterly report, the Receiver anticipates doing so on or before the May 11 deadline. 14. In accordance with the Motion to Establish Procedures, the Receiver's sending a

Determination Notice to all claimants on or before May 11 will trigger the beginning of certain claims review procedures, expected to last approximately 30 days. Given the questionable quality of the data upon which the Receiver must rely to validate claims and the relatively large number of claims which the Receiver has been unable to validate through that data, the Receiver currently anticipates receiving a substantial number of requests for the reconsideration of claims that have been disallowed in whole or in part. 15. During the period covered by this quarterly report, the Receiver also researched and

discussed with counsel for the SEC (who, in turn, discussed with the Tax Administrator for this case)

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the issue of whether providing claimants with a 1099-MISC upon the payment of funds from the receivership estate would be required under the circumstances here. The Receiver expects to resolve this issue within the next few weeks, in any event before submitting a plan for distribution to the Court. WHEREFORE, the Receiver respectfully submits this quarterly report this 17th day of April, 2007.

s/ Leslie A. Patten Leslie A. Patten, President Patten, MacPhee & Associates, Inc. 1775 Sherman Street, Suite 2900 Denver, Colorado 80203 Telephone: (303) 296-2900 Fax: (303) 296-4475 E-mail: [email protected]

DATED this 17th day of April, 2007.

s/ Michael D. Burns Michael D. Burns, #11631 1775 Sherman Street, Suite 2900 Denver, Colorado 80203 Telephone: (303) 296-2900 FAX: (303) 296-4475 E-mail: [email protected] Attorney for Receiver

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CERTIFICATE OF SERVICE I hereby certify that on April 17, 2007, I electronically filed the foregoing RECEIVER'S SIXTH QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2007 with the Clerk of the Court using the CM/ECF system, which will send notification of such filing to the following e-mail addresses:

Leslie J. Hughes [email protected] Christine J. Jobin [email protected] Thomas J. Krysa [email protected],[email protected]

s/ Michael D. Burns Michael D. Burns, #11631 Attorney for Receiver 1775 Sherman Street, Suite 2900 Denver, Colorado 80203 Telephone: (303) 296-2900 FAX: (303) 296-4475 E-mail: [email protected]